
424 Derivatives and Risk Management
Net premium received = (3.4 – 1.2) × 100 = INR 220
Gain = –INR 260 + INR 220 = –INR 40
3. Exercise settlement is at INR 65:
Since both the options will be in-the-money, both will be exercised. e high-exercise-price option
will result in a gain and the low-exercise-price option will result in a loss. e prot will be calculated
as follows:
Exercise price of the high-exercise-price put = INR 64
Exercise price of the low-exercise-price put = INR 60
Less exercise settlement value = INR 65
Amount to put spread investor = (1 – 5) × 100 = –INR 400
Net premium received = (3.4 – 1.2) × 100 = INR 220
Gain = –INR 400 + INR ...